What Is a POS System and How Does It Work?

A POS system allows your business to accept payments from customers and keep track of sales. It sounds simple enough, but the setup can work in different ways, depending on whether you sell online, have a physical storefront, or both.

A point-of-sale system used to refer to the cash register at a store. Today, modern POS systems are entirely digital, which means you can check out a customer wherever you are. All you need is a POS app and an internet-enabled device, like a tablet or phone.

So what does a POS system do? Usually, it works like this:

1. A customer decides to buy your product or service. If you have a physical store, they may ask a sales associate to ring them up. That associate could use a bar code scanner to look up the item’s price. Some POS systems, like Square Point of Sale, also allow you to visually scan items using the camera on your device. For online stores, this step happens when a customer finishes adding items to their cart and clicks the checkout button.

2. Your POS system calculates the price of the item, including any sales tax, and then updates the inventory count to show that the item is sold.

3. Your customer pays. To finish their purchase, your customer will have to use their credit card, tap card, debit card, loyalty points, gift card, or cash to make the payment go through. Depending on the type of payment they choose, your customer’s bank then has to authorize the transaction.

4. The point-of-sale transaction is finalized. This is the moment when you officially make a sale. The payment goes through, a digital or printed receipt is created, and you ship or hand your customer the items they bought.

Payment processing

Payment processing is one of the core functions of a POS system. Each time a customer buys an item, your POS system processes the transaction.

There are a number of different payment types a POS system might accept:

Cash

Secure online payments through your eCommerce site

Magstripe credit cards, which are cards that you swipe

Chip cards, which are credit cards with an embedded chip

Contactless payments, which might include a contactless card that customers tap or a mobile wallet (e.g., Google Pay or Apple Pay)

Card-not-present transaction, which happens when your customer and their credit card aren’t actually in front of you, so you have to manually enter their credit card information. This also occurs when a customers enters their payment details while checking out online.

POS reports

POS reports give you a quick look into how much you’re selling and earning. With clear reports, you can sell more and make better business decisions.

Receipts

Receipts make processing refunds easier, since there’s a digital or paper trail connected to the purchased item. They can also make your business look more polished.

Now that you have a better understanding of POS systems, if you're interested in any of our POS products, feel free to contact us.